The M Report – Tory Barringer
A bipartisan group of senators introduced on Tuesday legislation to replace Fannie Mae and Freddie Mac with a newly created agency. Citing the overwhelming presence of the GSEs in today’s mortgage marketplace, Sens. Bob Corker (R-Tennessee) and Mark Warner (D-Virginia) unveiled a new piece of legislation designed to wind down the enterprises and rebuild the private mortgage sector. The legislation would dissolve Fannie Mae and Freddie Mac within five years of passage and transfer appropriate utility duties and functions to a “different, modernized and streamlined agency.” The transfer would be done with a fiduciary duty to maximize returns to the taxpayer as the GSEs’ assets are sold off. In addition, the new bill requires private market participants to hold 10 percent of the first loss of any mortgage-backed security (MBS) that purchases a government reinsurance wrap. It also sets up an infrastructure for splitting up credit investors—who are willing to take on the risk of loss—from rate investors, thus keeping mortgage rates competitive while mitigating the risk of loss to taxpayers. Another proposed transitional step is to eliminate the enterprises’ affordable housing goals, replacing them with “more transparent and accountable” counseling and rental assistance programs. Finally, the bill would establish a new corporation—mutually owned by small banks and credit unions—created to protect local banks and credit unions from being “gobbled up by the mega banks as soon as Fannie and Freddie are dissolved,” thus ensuring direct access to the secondary market for institutions of all sizes.